McConnell Busted on Research Report Suppression

In September, the Library of Congress’ Congressional Research Service released a study to Congress which showed there was little discernible growth affects from low taxes. Mitch McConnell and the GOP objected to the report and, for reasons yet unknown, the report was removed from the non-partisan CRS website. (Report pdf)

The study, though, is important as the nation continues to discuss tax rates and how they affect growth.

Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%.

There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth.

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced.

The New York Timesreports that on September 28 the Library of Congress’s nonpartisan Congressional Research Service withdrew, under pressure from Senate Majority Leader Mitch McConnell, R.-Ky., and other Senate Republicans, a widely-circulated study concluding that since 1945 tax cuts have had no measurable impact on economic growth. […]

Please note that Hungerford’s study didn’t say there is no relationship between tax cuts and economic growth. It said there is no discernible relationship. He is hardly the first academic researcher to make this observation. The conservative economist Martin Feldstein went fishing for such a relationship in a 1989 paper about economic growth under Ronald Reagan. Feldstein’s paper, coauthored by Douglas Elmendorf, current director of the Congressional Budget Office, reached pretty much the same conclusion (though Feldstein and Elmendorf did suggest that tax cuts could effect the “composition” of economic growth). “We really don’t have any evidence that [personal income tax rates have] any effect on growth,” Berkeley economist Alan Auerbach told Business Week in September. “A lot of the research showing otherwise is based on theoretical calculations.” There isn’t even any discernible evidence that capital gains rates affect economic growth. Hungerford made that observation in a 2010 CRS report, but others have said so, too.

If you can’t find any evidence that tax cuts foster economic growth, then any belief that they do must be based purely on faith. The CRS report’s true offense is to question the religion that favors tax cuts to cure any and all problems. For any congressional agency to venture an opinion about such doctrine violates the Constitutional separation between church and state.

Senate Democrats have demanded a hearing to learn why the report was taken down at the behest of McConnell and other GOP senators. As a nation locked in discussions over effective marginal tax rates and national debt, this information from the CRS would affect the discussion. The public needed this information in order to make an informed decision about the country’s future. McConnell was wrong to demand that it be pulled from the CRS website.